Month: March 2017

Want to switch on the TV? Wait for the entire family to gather in the evening. That’s one of the strategies that Philippine Energy Secretary Alfonso Cusi says his countrymen use to squeeze the most juice out of electricity.

When President Rodrigo Duterte gets a moment from his drugs war, a busy economic agenda is crying out for attention. Energy will be near the top of the list. There’s no obvious reason why power should cost 60 percent more for Filipino households than those in Thailand. Indonesian tariffs are seven times cheaper. Even Singapore, which like the Philippines has no consumer subsidies, pays 18 percent less for electricity than its Southeast Asian neighbor.

Yet statistics point to a glut. Prices in the spot market, where distribution companies buy electricity from producers, are down to a record 2 pesos (4 cents) per kilowatt hour, Cusi says.

Producers, which include a Who’s Who of the Filipino business elite, are complaining about a dangerous oversupply of capacity. Nonetheless, they have to finish what they’ve started.

Ayala Corp., the country’s oldest conglomerate, will allocate 21 billion pesos of its 185-billion peso capital expenditure this year to power. The bulk of San Miguel Corp.’s 63 billion pesos in spending this year will be on power. Aboitiz Equity Ventures, Inc. has earmarked 59 billion pesos to complete the 4,000 megawatts it wants to own by 2020.

Everyone’s a little jittery. The rate of return on new power plants has slid to below 10 percent. At least one group has already put the brakes on fresh investment. If all projects that were on the table when the last administration left office in June are completed by 2021, it may take nine years for demand to catch up with supply.

Consumers should still brace for bill shocks. The reason is partly the country’s challenging topography. In an archipelago of 7,000 islands, transmission is a big challenge. Increasingly, a bigger reason may be an unsustainable quest for sustainable energy.

Renewables account for 31 percent of dependable power capacity, a close second to coal’s 36.5 percent share. More than half comes from hydro, with solar making up roughly a tenth. But in the island group of Visayas, which spans the middle of the Philippines, a quarter of renewable energy capacity – and almost 12 percent of the total – is now solar.

Five years ago, the government guaranteed to absorb power generated by renewable sources at what now appear to be highly lucrative long-term prices. That’s especially the case for solar, where panel prices have crashed. The extra cost is recouped from customers. It’s no different from Germany, except that an average Filipino’s income is a fraction of the average German’s.

So what are the options? The Philippines is hot but not particularly sunny. It has exhausted its geothermal potential, and nuclear is a long way from being politically viable. Gas has merit, especially if Duterte’s bonhomie with China leads to exploration opportunities in the South China Sea.

Cusi’s stance of keeping supply sources “technology neutral” is sensible. He comes from Mindoro, an island whose sole source of power is diesel barged in from elsewhere. A submarine cable from a coal-fired plant on another island was approved only recently.

For the Philippines to have a shot at sustaining 7 percent GDP growth, coal is unavoidable. It’s also contentious. Just this week, Greenpeace identified the country as one of 10 “hot spots” beyond China and India because it’s building almost 14 gigawatts of coal-fired plants.

With her family’s company a prominent energy investor, rivals worry about bias. Backers say her advocacy of 100 percent renewables is what the Philippines’ fragile ecology – ravaged by five serious typhoons since 2006 – needs to address climate change.

Like almost everything else in this country of 104 million people, any decision will ultimately be a battle among members of the business elite. That’s why Duterte, a former city mayor with no ties to the conglomerates, will have to step in.

One solution could be to stop the mollycoddling of solar, and let new plants bid for tariffs. If the Indian experience is anything to go by, there could be plenty of supply at low rates. The last thing the president will want, though, is India’s downside: lots of stranded coal-based generating capacity in a slowing economy weighing on the banking system.

Duterte has so far kept his thoughts on economic policy to himself. That’s causing anxiety for business groups.

Even if the president doesn’t give two hoots for the billionaires, he has to think of his power base: the people. The 86 percent popular support he enjoys could be reinforced if somebody living in a one-bedroom apartment didn’t have to shell out $60 a month for electricity.

That’s in Manila. On a remote island, consumers pine to watch TV and leave electric fans running. If only the president could tear himself away from chasing pushers and dealers.

(This column does not necessarily reflect the opinion of Bloomberg LP and its owners).

About 20 typhoons hit the Philippines every year like clockwork. It is only a question of where they would hit and how bad the damage would be. Meralco is hit additionally by two disasters every year like clockwork. Similarly it’s a question of how bad the damage to consumers will be. One Every summer when power demand shoots up and hydro power supplies are down. It is no longer as bad because of solar power but nonetheless there is frenzy in power shortages in the summer months. These are also the months when those who want to ram the approval of their coveted coal projects go into high gear with their media and lobby campaign with legislators threatening power shortages and calling for fast approval of projects.

The Second disaster that hits the Meralco area every year like clockwork is the Malampaya alternative fuel shuffle. When it happened in November 2013, Meralco nonchalantly applied for approval of a whopping 4.15 per kwh pass on charge, 90%, in generation rates and got ERC’s approval in one sitting just before Christmas of 2013. Meralco and ERC were foisted to whack the consumers with almost P10 billion alternative fuel charge. If that was not enough they followed it with a 100% increase application for January.

The Malampaya consortium is the only supplier of natural gas to the three natural gas generators contracted to Meralco. A total of 2,565mw.Malampaya shuts down annually for preventive maintenance. Everytime that happens the three generators, First Gas Sta. Rita, First Gas San Lorenzo, and Ilijan, buy alternative fuel which are more expensive.

In 2013 Meralco’s media machinery tried to blame all of the P10 billion additional charge to the Malampaya shutdown and the shutdowns of many coal power plants that mysteriously went off line in the same period. MSK’s analysis of Meralco’s power sourcing showed that the P10 billion additional charge was not only a result of Malampaya but the suspicious behavior of Meralco’s other power suppliers and the apparent market manipulation that caused the WESM market to shoot up to P62 per kwh.

These annual Malampaya hurricane has been hitting Meralco consumers since 2007 when the First Gas Power plants totaling 1,500mw started operations. And the ERC and the Meralco consumers have been dutifully approving and paying for them without question were it not for the mind-boggling amount in 2013!

This year the Malampaya shutdown happened from January 28 to February 16. Meralco applied on February 18, 2017 with the ERC for an additional charge of P0.9174 per kwh for recovery of P2.4 billion in additional cost of alternative fuel used by the three Meralco suppliers using Malampaya gas. It turned out the actual fuel increase being claimed was P1.751 Billion and the ERC gave a provisional authority last March 6, 2017 for Meralco to start charging the consumers with a lower P0.22 per kwh additional charge for the first month compared to the original P0.30 per kwh Meralco was applying for.

Your association, MatuwidnaSingilsaKuryente Consumer Alliance Inc., entered its intervention in the application to determine if the additional charges are fair and reasonable and to look into the mitigating measures that Meralco has been taking to protect consumers from avoidable charges.

The first hearing was held last March 14 at the ERC main offices in Ortigas center, Pasig City. The 2nd one was held March 17 at 2pm.

We discovered during the hearings that Meralco is passing on the fuel differential for the whole month of January 26 to February 25, 2017 (30 days) instead of only for the period that coincide with the Malampaya shutdown of January 28 to Feb 16 (20 days). Asked during cross examination why there is no breakdown ,Meralco’s witnesses said that’s how First Gas and Ilijan bill them and they don’t ask for further details. They just passed on whatever is invoiced to them by the power generator.

Meralco was apparently not prepared to answer deeper questions on their mitigating measures to protect the consumers. It is clear that to them Malampaya surcharge of P2.4 billion is only a computational and passive exercise. Their culture does not seem to really take to heart their continuing mandate as a public services distribution utility franchise holder to protect the consumers and assure least cost power.

Well what can we expect from Meralco when it is doing business with its sister company?

In the 2nd hearing last Friday March 17 at 2pm, a more senior lawyer of Meralco, Atty. Valles attended. He tried to answer questions in ways that suggest that Meralco is taking measures to protect the consumers and not just passively passing on what their suppliers bill them as was admitted by Meralco’s billing and rates supervisors in the previous hearing of March 14.

Congressman Ted Casino of Bayan Muna asked Atty. Valles how they insure that the fuel being charged to consumers were competitive in the market and that there were no lower suppliers. Ted asked if their generators submit a canvass of the different suppliers of alternative fuel to Meralco. Atty. Valles this time said they receive such a canvass and Meralco studies it to see if they are satisfied that the prices are competitive. Ted then asked Atty. Valles if they can submit copies of such procurement canvass for Alternative fuel and Meralco communications to First Gas and Ilijan of their approval or comment. Atty. Valles demurred and said return the documents to the generators and they don’t keep copies of those communications. He also mentioned about confidentiality agreement between Meralco and First Gas. MSK argued with Mr. Valles that if Meralco wants to pass on these more expensive fuel to the consumers they must at least support the charges.

The ERC’s hearing officer Atty. Ivan Galura, instructed Atty. Valles to submit these supporting documents validating that Meralco indeed did something to assure the prices of alternative fuel are procured competitively to mitigate the costs to the consumers. We assume that this validating document will be presented by Atty. Valles in the next hearing on March 27, 2pm.

Atty. Valles also said Meralco coordinates with NGCP and the other power generators on preparations for the Malampayashurdown. He was vague though on whether such coordination included looking for mitigating measures to protect the consumers.

Atty. Valles presented a witness who made a presentation on the terms of the power supply agreement between Meralco and the Malampaya generators, First Gas and Ilijan. In essence they were saying that they needed to run the 2,565mw of Malampaya power plants to assure there will be no brownouts in the Meralco area. They disclosed also that under the terms of the power supply contract that interruption in Malampaya fuel supply is considered a “force majeure” event and that the power generators can therefore buy more expensive alternative fuel to keep the plants running. Atty. Dimagiba of Laban Konsyumer Inc., another intervenor, argued that the PMS shutdown of Malampaya is not considered force majeure as defined by law.

So far there appear only two mitigating measurers being taken by Meralco. One is to spread the pain of the Malampaya additional charges by dividing it into three months. Two is that they sign for additional supply to cover the drop in the output of the Malampaya generators.

Your association will endeavor to introduce mitigating measures for the future to find a solution to protect the consumers since such does not seem to be coming from Meralco.

We will update you as things develop. Next hearing is March 27 2PM at the ERC Offices, 15th floor Pacific Center, Ortigas Center Pasig.

The Philippines has 7,017 islands with 20 major ones. Luzon, Most of Visayas, and soon Mindanao are connected to the main grid. Big islands likePalawan, Mindoro, Masbate, Marinduque, Romblon, Catanduanes, Bantayan Island, Siquijor, and Basilan are the major islands not connected to the national grid and they take up P10 billion a year in missionary subsidy.The true cost of generation is about P10 per kwh compared to an average of P5.00 per kwh on the grid.

Yet, the quality of power supply continue to be unsatisfactory and slow in coming.

First Things First

Many ideas for more submarine cables to connect big islands like Mindoro to Luzon, Mindanao to the Visayas, Sabah to Palawan and Palawan to Luzon are being floated. To make sensible decisions on these expensive connections, a national strategy decision has to be made first on the role of the inter-island power grid links. Are they for the purpose of being the main source of power or only to share supplementary supply resources among the islands?

Inter-island link as main source of supply

If the submarine inter-island grid is intended to be the main source of power to the island it means there is no intention to build cost effective main supply on the island itself. It means centralizing power generation and bringing them to these islands by submarine cable. It also means the submarine cables will be much bigger in capacity, probably 138 and 230kv.

We are an archipelagic country trying to configure our national grid as if we are one homogenous country like the western countries that we seem to be copying. Centralized generation is so old and ignores the trend towards smaller generation and renewable energy that also tend to be smaller. The drop in savings from larger and larger power plants, the increased cost and geographical constraints of building more and more high voltage transmission lines, and the dropping cost of smaller generation technologies have combined to this trend.

Inter-island links for sharing of supplementary resources

This means the inter-island connection is only being built for the purpose of sharing the power generation resources of one island with another for supplementary peaking and reserve power and even intermediate or mid-merit needs.

This means the main source of power of each island will still be on the island itself and not imported. Consequently, the submarine connection is for lower capacity of 69KV and in some cases maybe even 34.5kv. There is a quantum leap in costs of 138 and 230kv submarine power systems which require gas insulated cables and technology compared to only basic insulation and auxiliary systems for 69kv. In the proposed Mindoro to Batangas connection the 230kv line was estimated at P11.9 billion while Napocor estimated the 69KV line at P4 billion.

Lessons from the Past

The Napocor monopoly pursued this centralized power generation strategy and linked the Visayas islands in the 1970’s and 80’s with submarine cables to Negros, Panay, Bohol, and Boracay. Main power supplies were centralized in Leyte and Cebu. Consequently Negros, Panay, and Boracay suffered for decades with terrible power quality under this concept. It was only when the private sector built power plants in Iloilo that the power reliability improved in Panay island and Boracay.

1. On-Island Power Generation and N-1

For power reliability each island must be self-sufficient in base-load power supply. Some islands are big enough to afford a 65 to 150mw in base-load generator like coal and natural gas. It can be a mix of energy resources like mini-hydro and biomass and small natural gas which is now feasible like what is possible on Negros Island.

This is in line with the N-1 and even N-2 power development requirement of the Philippine Grid Code. It means even if one or two of the largest generating unit to the island goes out the “N” (normal service) will still be maintained.

The submarine cable is a unit of supply. If it is the main supply of power to an island, if it goes out, will there still be normal power service to the island or there will be brownouts? If we supply Negros island with 200mw of base-load power via submarine cables,everytime that system goes down, will there be 200mw of backup reserve power on the island itself to maintain normal electric service?

2. Economic Sense of Submarine Inter-island grid connections

Ideas for inter-island grid connections must make economic sense for ultimately it will be the consumers who will pay for it.

a. The Mindanao-Visayas grid connection

We can argue that this connection despite its costs can be economical because there is plenty of power supply from Mindanao (2,500mw of coal projects) that can be supplied to the Visayas and Luzon grid. Mindanao also has over built on diesel power plants that were intended only as security in case the Agus and other suppliers fail. Luzon and Visayas can share to Mindanao its excess power during the summers when Agus hydro complex drops 400mw in capacity.

The Mindanao supply can help keep the WESM prices in both Visayas and Luzon within reasonable level.

1. The Mindoro Connections

Mindoro island is so big and so close to Luzon that the island has been a favorite target for submarine grid connection. However, the originally proposed P12 billion Batangas to Mindoro connection was apparently designed to carry a 300mw coal supply from Mindoro to Luzon that’s why it was designed for 230kv. The problem was the claimed 300mw coal project in Mindoro was not actually in Mindoro because the DOE had long determined that Mindoro coal is not of sufficient quality. (Whoever tried that stunt?)

When your consumer group MatuwidnaSingilsaKuryente Consumer Alliance looked into it in 2011, it realized that there were actually three (3) parts to the “Batangas to Mindoro” connection proposal. The 230kv submarine cable connection from Batangas to Calapan Mindoro (25kms), then the 230kv, 300km overhead transmission line from Calapan to San Jose Mindoro Occidental and as disclosed by the electric coop OMECO, the submarine connection from San Jose to Semirara Coal mines. Apparently the 300mw coal supply mentioned by NGCP to benefit Luzon consumers was not really in Mindoro but in Semiraraisland, 15 kms away. It explains why the project incongruously included a 300KM 230KV line from Calapan to San Jose, a city with only 12mw in demand.

Building the submarine cable is very expensive and someone has to pay for it and it will most likely be the consumers. The only way to make the cost palatable is to spread the cost over all the Luzon consumers.

Economically, it does not make sense. Mindoro island currently has 65mw power demand. It grows only at 5% at most per year. In 10 years it will only have 106mw. Obviously Mindoro island cannot use all that 300mw power so a connection line from Mindoro to Luzon will have to be eventually justified.

There is a new proposal to build a submarine cable from the mine-mouth coal plant in Semirara to San Jose Occidental Mindoro, a province with only 25mw in demand As far as we know the Phil Grid Code rules that such connection will only be for the use of a Semirara coal project and therefore should be classified as a dedicated connection line that the power generation proponent will have to build himself and pay for it as part of his project cost. Down the road the creative minds will convince “another” power generator to build a plant on Semirara island and hence technically the submarine connection line from Semirara to Mindoro will have to be taken over by NGCP because by then it is “needed to assure competition” since there will be several generator users. Imaginative. The cost of the expensive submarine cable connections will become part of NGCP transmission charge. And it will be bigger because they will justify building the 300km 230kv overhead line from San Jose to Calapan and then the 25km submarine cable from the Calapan to Batangas. Just like the old proposal in 2011 except this is being pursued in reverse.

MSK’s question then still remains. Why make the Luzon consumers pay so much for submarine cable costs from Semirara to Batangas when it can buy the 300mw from a Luzon based power project without the big transmission line expense? Why not buy the 300mw from the SemiraraCalaca plant even?

The Island of Mindoro can need 300mw of power by itself only in the foreseeable future if it is connected by land bridge to Batangas thus justifying migration of industries and more residents to the island. Otherwise it will be only a 100mw island in 10 years.Longer if it grows its normal 3.5%.

1. The Palawan-Sabah power Link-up

Another exotic idea being floated is to source “dirt cheap” power from Sabah to Palawan by a 200km submarine cable power link. We agree with writer Ms. Myrna Velasco of the Manila Bulletin that it is “dreaming an impossible dream”.

A 200km Sabah to Palawan cable link can be economically feasible only if it involves more than 1000mw. It will also involve building a 230kv line the 350km length of Palawan island. The 300km subsea gas line ofMalampaya became viable because it involved 2,700mw of gas energy. Furthermore, we have to consider the national energy security implications of buying power from a country with whom the Philippines has some history of territorial conflict.

The main land of Palawan now uses only under 50mw peak demand.Even if it grows at 10% per year, it will only need 130mw in 10 years. And it is not going to maintain that 10% growth by the 7th year.

Obviously, the 200km Sabah to Palawan link up will not be viable if it is only for the 50mw Palawan. Supposed the Sabah power is 500mw. That power will need to be brought to the larger market of Luzon. This means building a submarine cable from Palawan to Luzon mostly likely via Mindoro.That will help justify that 230kv overhead line from San Jose Occidental Mindoro and the 25km submarine line from Mindoro to Batangas.

But it is not that Simple

Bringing power to Luzon via a Mindoro power link from Semirara or Palawan-Sabah will have to address the congestion in the Batangas transmission line corridor to the load center of Metro-Manila. The cost of building a new 230kv line to Manila will need to be factored in the cost of a Mindoro connection project.

Talking about what is technically and economically sensible, why not the Philippines consider Bataan as an energy zone and build a shallow Manila bay submarine cable from the Bataan Peninsula to the Metro-Manila and Calabarzonarea? This is a dream worth dreaming.

Economic Costs and Archipelagic Power Grid

In the end it should be the economic costs to consumers that should drive the decision. For the archipelagic Philippines, what would be fair and reasonable to consumers would be an archipelagic power grid where each major island would beself sufficient in its base-load supply and only get where feasible the peaking and reserve power from other islands. Even this one needs to be economical. It would not be sensible for Palawan to secure its peaking power from outside because it is so far away from the other islands. Down the road when it gets to say 200mw, maybe it can do the reverse. Buy its main supply from the Luzon grid through a submarine cable and then be self-sufficient in peaking and reserve power. For now what makes sense for Palawan is to develop its own base-load power using mini-hydro and natural gas. Temporarily supplement it with diesel plants. Solar does not make sense unless it becomes self-regulating with its own battery storage capability at reasonable costs. Palawan is also tied up with long term power supply contracts with DMCI and Vivant Delta P with guaranteed contracts on bunker c power for 20 years.

Let us be realistic when we dream of these inter-island grid connections. We can do so by deciding first on what role of the inter-island connection. Will they be for main source of power or for resource sharing of excess power for peaking and reserve?

It seems our power grid dreams are imagined by the power generators for their own interest. The government officials will dream the right dreams if they do so purely from the interest of the country and the Filipino consumers.